PA ANALYSIS The Great British Rate Off

As the proliferation of rating agencies gathers pace, with FE the latest entrant in the risk-targeted space, key UK fund selectors are undoubtedly being courted by both agencies and fund groups in need of their advocacy and business, respectively.

PA ANALYSIS The Great British Rate Off


Many a fund seller I've spoken to over the years claims his toolkit requires three main things in order for them to best flog their managers' wares: strong platform listings, three-year track record (ideally showing outperformance, if that's not being greedy) and ratings from one or two credible agencies.

While the market used to be dominated by three major players – Morningstar, OBSR and Standard & Poor's, the space looks very different today.

Beauty parade

As S&P's Capital IQ steps away from the market, other players are gaining traction, repositioning, launching, forging partnerships as they preparing for a complex beauty pageant, of sorts.

Take the recently 'rebranded' Rayner Spencer Mills Research, hotly anticipated Square Mile Investment Research, Albemarle Street Partners, set up by Dan Kemp and Clive Hale (and Sam Liddle, who recently announced his move into the backseat), FE launching a risk-targeted range, Paul Ilott's multi-manager research outfit Scopic joining forces with City Financial, which will see Gill Hutchison and Peter Toogood, also former Morningstar OSBR-ites, leading its Adviser Centre. And that list is far from exhaustive.

June will be a busy month by the looks of things, with advisers and fund managers having to choose whose party they'd like to attend.

Schroders' James Rainbow, head of UK financial institutions and strategic accounts, says the field of vision has definitely opened up.

"The first thing is to actually get the fund ratings but the second thing is a commercial conversation.

"One of the ways one proposition stands out over another is through the commercials. If you have a single player who seems to have strong influence over the market, that seems to be gaining traction, we would be more willing to promote that and say our funds are rated by that agency than another."

All sounds very mutually beneficial.

Rainbow says any potential market contraction, following this flurry of expansion, will take time to play out, and I think this year will be a well-played match.

Albemarle Street Partners announced last year its plans for a strategic alliance with Chelsea Financial Services, labelled FundCalibre.

With regulatory hurdles (around legal structures and definitions of guidance-or-advice) overcome, the service is said to be "coming soon".

Chelsea says the (rarer) D2C service will help self-selectors validate their fund choices with the AlphaQuest qualitative overlay scrutinising fund managers' performance as being based on luck or judgement.

Morningstar OBSR, having lost some key personalities after the merger, claims to still have the strength of analysis it had before, with plans to build out further.

Chris Traulsen, head of Morningstar fund research, EMEA suggests the market's perception of his business as quant-only is misguided. Morningstar's UK qual team is 12-strong from a broader EMEA team of 40, which he says is its best-resourced yet.

With a core mission of helping investors, expansion plans that follow market movement (now looking at passives and investment trusts, for instance), the team will continue to build on its long history, welcoming new competitors, he says, citing global reach and the access it brings, as a key advantage. Further developments will see the group moving increasing its emphasis on the risk-targeted sector as multi-asset funds and solutions grow in use.

'Depth not breadth' 

Nigel Whittingham, co-founder and director, says Square Mile, established jointly with his OBSR colleague Richard Romer-Lee, is about depth of research – research with a purpose – and that purpose is not for the sake of publication, which he says can become too "academic".

Rather, Square Mile is pitching its research services, 'rating' becoming synonymous with 'recommending'.

Focusing on fund management wholesale and larger advisory firms who will take consultancy services will keep their focus relatively narrow, offering guided architecture solutions and sample or model portfolios to consultancy clients. In addition, the sub-categorisation of funds and the methodology used ensures funds are fit for purpose.

When they launch in June, the team will demonstrate its key criteria of value-not-price and introduce ratings of risk-based funds, alternatives and will also look at new or smaller funds, which are often overlooked and may in many cases outperform their larger 'best in class' counterparts.

Toogood and Hutchison, while managing money at City Financial have "opened up their shop" to advisers who had to create a centralised investment proposition but didn't know how to go about it and will also seek out the next generation.

Of their 120-odd rated funds, the pair has decided on three badges – 'established' (hold it if you have it, but don't pile in now), 'recommended' (as per the tin), and 'positive watch' (if you're feeling punchy, consider it now, but it will likely make it to 'recommended' in the not-too-distant future).

Not just the old guard

The nice thing to hear is that all the new kids on the block (or rather older kids, different addresses) are starting to look beyond the norm. Perhaps the old arguments of lack of a rating absence due to lower AUM or shorter track record will dissolve and the sales pitch will require more weight.

Neil Stevens, joint MD at SimplyBiz and MD of its investment solution arm Verbatim, 'rates' RSMR, having offered its fund and model portfolio service to its advisers for 3-4 years, but welcomes the broader competitive set with open arms.

"The market was overly concentrated on just OBSR for a long time. The newer entrants have taken slightly different approaches, and some are more accessible than others, but you basically had the situation where a very small handful of people were influencing the decisions relating to a very lot of money."

At first glance, all the propositions might look very similar, but a closer look through the window shows otherwise.  You must know why you're choosing the consultancy you choose. This means more due diligence, more research (in choosing a research partner, awkwardly), more decisions. All to work with companies that by design, should help you to focus on your core strengths. Which they will, when you eventually work out what they all bring to the table.

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